Ethereum’s Shanghai upgrade: prepare for short-term volatility, prepare for long-term growth

At 2:27:35 a.m. (SGT) on April 13, the Shanghai upgrade will go live on the Ethereum mainnet.

The update will be the final step in Ethereum’s nearly-three-year migration from being an altcoin to becoming a challenger to Bitcoin’s dominance – although the short-term consequences may be tough for investors.

The price of ether has risen steadily ahead of the Shanghai upgrade. / Image Credit: Tech in Asia.

The Shanghai upgrade – also known as Shapella – follows “the Merge” last November, an update that literally merged the Beacon blockchain with the Ethereum mainnet.

Beacon was a chain running parallel to Ethereum and designed to test the proof-of-stake (POS) protocol. While the Merge was largely a technical integration of those two chains, the Shanghai upgrade will activate new features, including the ability to withdraw (unstake) tokens.

18 million ether set to unlock

So when the appointed time comes, over 18 million ether – worth approximately $34.5 billion as of Tuesday – will become available to enter the market. The release of that much ether could test investors’ appetite for crypto.

“Some short-term market volatility is to be expected, but this will largely be in line with what we have always seen in the crypto markets,” Chen Zhuling, founder and CEO of RockX, a Singapore platform that provides non-custodial staking, tells Tech in Asia.

“While the verdict is still out as to what exactly this will look like and how long it will last, one thing is for certain – although Shapella is a much simpler upgrade than last year’s Merge — the long-term opportunities it will introduce are game-changing,” he adds.

None of the analysts that Tech in Asia spoke to expect a massive sell-off, although measures are in place in case of any possible mass liquidations. Even in the worst-case scenario, investors will not see billions in ether hit exchanges simultaneously.

Investors will have to request the withdrawal of their ether, which will then be processed in the order the withdrawals are received. A daily limit of 115,200 withdrawals has been put in place, but withdrawals still take time, according to Hosam Mahmoud, a Research Analyst at CCData.

“For full withdrawals, it could take weeks,” he told Tech in Asia.

Overreacting in the short-term

But volatility is expected, and ether prices will certainly fall in the short term.

“ETH stakers will likely be monitoring withdrawals and may potentially overreact in the short-term if there is significant withdrawal demand or signals pointing to large ETH liquidations,” says Ken Timsit, head of Cronos Labs.

“Once short-term volatility has been smoothed out, however, it is likely that the outcome will be neutral given that this upgrade has been priced into ETH value for some time now,” he notes. In December, the price of ether dropped below US$1,200 but has risen steadily since, going over US$1,900 in early April.

No more gassy transactions